We downgraded our long-term recommendation on
Citi Trends Inc.
) to Underperform with a target price of $9.50, based on
continued losses suffered over the past several quarters as well
as a troubled ladies apparel division.
Why the Downgrade?
Citi Trends posted loss per share of $0.05 in the fourth quarter.
Although the company's losses narrowed from $0.36 reported in the
year-ago quarter and compared favorably with the Zacks Consensus
Estimate of a loss of $0.07 per share, it continues to struggle
to resolve fashion issues in its ladies apparel division. Net
sales declined 1.5% to $175.7 million and missed the Zacks
Consensus Estimate of $186 million.
Though the company has made significant progress in resolving
pricing issues and remains on track to resolve fashion issues in
2013, the company expects its first and fourth quarter of fiscal
2013 to be impacted by the shift of one week of fiscal 2013 in
fiscal 2012, due to the additional week that was accounted for in
Following the dismal fourth-quarter earnings results, the Zacks
Consensus Estimate for the first quarter of fiscal 2013 has gone
down considerably. The Zacks Consensus Estimate for the first
quarter has been lowered by 13.8% to 56 cents in the last 30
Cause for Concern
Operating in the consumer-driven retail industry, we believe Citi
Trends remains significantly impacted by the macroeconomic
issues, wherein its customers continue to feel the pinch of
increased payroll tax, higher fuel prices, high unemployment rate
and delayed tax refunds. Moreover, the seasonal nature of the
company's business typically generates stronger sales during the
first and fourth quarters, which are characterized by the spring
and holiday seasons. As a result, the company is exposed to
significant risks if the seasons fail to deliver the expected
Additionally, the highly fragmented specialty retail sector
compels Citi Trends to compete with larger off-price rivals, mass
merchants as well as smaller specialty retailers on the basis of
fashion, quality and service. To retain its existing market
share, the company may have to reduce its sales prices, which
could affect its margins.
Given the fourth-quarter results and the limited near-term
catalysts, we expect the company's share performance to remain
strained in the near term.
Specialty Retail Stocks That Warrant a Look
While we prefer to avoid Citi Trends until we see signs of
improvement in the company's performance, other specialty retail
stocks worth a look are
Sears Holdings Corp.
Costco Wholesale Corp.
Bebe Store Inc.
). Sears Holdings has a Zacks Rank #1 (Strong Buy), while Costco
and Bebe hold a Zacks Rank #2 (Buy).
BEBE STORES INC (BEBE): Free Stock Analysis
COSTCO WHOLE CP (COST): Free Stock Analysis
CITI TRENDS INC (CTRN): Free Stock Analysis
SEARS HLDG CP (SHLD): Free Stock Analysis
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